Lowe's Companies Inc.: Analyzing Financial Reports for Investors - Essay Sample

Lowe’s Companies Inc., operating under Home Improvement Retail Industry, offers home solutions such as construction, remodeling, repair, decoration, and maintenance (Yahoo Finance, 2020). Its services are available in the United States, Mexico, and Canada. Various implications can be made from its financial reports that can help investors in making investment decisions.

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Current ratio is a liquidity metric used to showcase a company's ability to settle its short-term debts within one year (Adelaja, 2015). Calculated as a quotient of current assets and current liabilities, the current ratio indicates the company's ability to maximize its current assets to meet its financial obligations (Adelaja, 2015). In the case of Lowe’s Companies Inc., the current ratio is well below the industry average, which indicates that its ability to settle its short-term loans and other payables is relatively lower compared to major competitors. However, the company performs far better when its most liquid assets are considered given the higher quick ratio. The high quick ratio shows that Lowe's Company has more assets that can quickly be converted to cash in pursuit of settling outstanding short-term liabilities. In most cases, such liquid assets exclude accounts receivables.

A company's efficiency leans on its ability to sell and replace inventory as many times as possible within a given financial year, which increases sales volumes and eventually augments total sales (Adelaja, 2015). Inventory turnover, which is calculated by dividing the costs of goods sold by average inventory, is used in calculating the number of times a company sells and replaces its inventories (Adelaja, 2015). In this case, the inventory turnover of Lowe's Company is higher than the industry average, pointing to the fact that it has greater efficiency in selling and replacing its inventories compared to most of its industry peers. This is also evidenced by days of sales. While the industry takes an average of 104 days to turnover inventories, Lowe's Company takes only 96 days, indicating greater efficiency.

Generally, the company's performance is impressive and above the industry averages as per the outcomes of the data presented in this brief analysis. It is evident from the analysis that using a quick ratio to project the ability to meet financial obligations is more accurate than relying on the current ratio since some current assets are less liquid. In this sent, it is safe to argue that the ability of Lowe's Companies Inc. to settle its debts and other payables is supernormally higher compared to that of the industry. It also takes fewer days to complete sales.

References

Adelaja, T. (2015). Accounting ratios: Financial ratios. CreateSpace.

CSI Market. (2020). Home improvement industry financial strength, leverage, interest, debt coverage, and quick ratios. CSIMarket - Company, Sector, Industry, and Market Analysis. https://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=1306MSN

Money.com. (2020). Quote for lowes UK defined strategy fund C GBP - MSN money. MSN. https://www.msn.com/en-us/money/funddetails/analysis/ie-lowes-uk-defined-strategy-fund-c-gbp/fi-bv26ur

Yahoo Finance. (2020). Lowe's Companies, Inc. (LOW) stock price, quote, history & news. Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/quote/LOW?p=LOW